Facebook's mobile improvement sends stock soaring

In this photo illustration, a Facebook logo on a computer screen is seen through a magnifying glass held by a woman in Bern in this May 19, 2012, file photo. Facebook Inc's revenue rose 32 percent in the third quarter to $1.26 billion, October 23, 2012. REUTERS/Thomas Hodel/Files

Despite reporting a loss for the quarter that ended in September, Facebook said Tuesday that its advertising revenue grew at a faster rate than it did in the previous three months ending in June. That was welcome news for wary investors after the company reported slowing growth earlier in the year.

Facebook said about $150 million, or 14 percent of its advertising revenue, came from ads shown on smartphones and tablets, which was also viewed as an improvement for a company that made no money from mobile users a year ago. Facebook's stock rose more than 12 percent in late trading Tuesday after CEO Mark Zuckerberg reported earnings for the company's second full quarter since going public in May.

"They're essentially growing from nothing, so it's a very good start," said R.W. Baird financial analyst Colin Sebastian, referring to Facebook's mobile ad business. "It's early days. There needs to be a lot more progress, but this is a positive sign."

Advertisement

Zuckerberg made the most of those numbers during a conference call with analysts, in which he insisted repeatedly that critics have mistakenly viewed the growing popularity of mobile devices as a vulnerability for Facebook, rather than an opportunity.

The rising number of people who surf the Web with smartphones and tablets, rather than desktop computers, has proved vexing for online companies including Facebook, Google (GOOG) and Yahoo (YHOO), which are all scrambling to develop new types of ads to show on the smaller screens of mobile gadgets.

While Facebook recently announced it had achieved a milestone of more than 1 billion active users, analysts have noted that 600 million of those users now view the social network on mobile screens -- where the company only recently began selling ads.

Zuckerberg, however, cited statistics that indicate mobile users visit the network more frequently than desktop users and also show higher "engagement," as measured by their rate of posting messages or clicking on "like" to recommend things to their friends.

"We can reach more users" on mobile devices, he said. "Those users visit Facebook more often, and we can make more money."

Facebook reported overall revenue of $1.26 billion for the quarter that ended in September, up 32 percent from a year ago. The company had a net loss of $59 million but said its net income excluding adjustments for tax provisions was $311 million. That amounted to earnings of 12 cents a share, excluding one-time charges.

Wall Street analysts were expecting Facebook to report earnings of 11 cents a share, excluding one-time expenses, on revenue of $1.23 billion, according to Thomson Reuters.

Perhaps more significantly, analysts noted that Facebook's revenue from advertising rose 36 percent from a year ago, to $1.09 billion, compared with a 28 percent increase in the previous quarter. "I think that caused a little sigh of relief," Sebastian said.

Facebook also makes money from online purchases and fees paid by developers who sell apps and other goods on the site. The picture there was less positive. While revenue from that category increased 13 percent from a year ago, to $176 million, Chief Financial Officer David Ebersman acknowledged that figure was down 9 percent from the previous quarter.

That was largely because of a decline in payments from Zynga, the San Francisco game developer that created several popular apps for Facebook's platform. Zynga's most recent games have been less successful, however, as Facebook has made it easier for competing developers to reach users on its site.

Payments from Zynga were down 20 percent in the last quarter, Zuckerberg told analysts, although he said that was partly offset by a 40 percent increase in payments from other game developers.

Facebook has announced a flurry of new revenue initiatives in recent weeks, including a program that lets users buy gifts for friends and services that help advertisers target consumers on Facebook and on other websites.

Despite those efforts, Facebook's stock has wallowed for months at barely half the $38 share price that the company set for its much-hyped initial public offering last May. The stock closed Friday at $19.50, but gained more than $2.50 in late trading after the earnings report.

Contact Brandon Bailey at 408-920-5022; follow him at Twitter.com/BrandonBailey.